California price rule for power a wild card

By Karen Gaudette The Associated Press June 22, 2001

SAN FRANCISCO -- When power supplies stretch thin across the West this summer, who will decide whether Silicon Valley computers, Washington apple orchards or Las Vegas casinos get first dibs on what’s left?

It’s a key question raised by the decision of federal energy regulators this week to cap electricity prices throughout the West, using a formula based on California’s power costs.

Economists, energy industry executives and officials in all 11 states are now analyzing the fit of this piece in the energy puzzle.

Though most call the order a good step that could prevent price gouging, others worry the pricing system could lead to electricity shortages for California’s neighbors, or prompt utilities to stock up on power contracts to fend off shortages, diminishing any leverage power buyers might have as they compete for the remaining megawatts available each day.

Future quandary: Tying the highest possible power price to California could cause a problem come winter, when power demand drops in the Golden State, said Gary Ackerman, director of the Western Power Trading Forum, which represents most sellers of energy.

States where consumers need electricity to heat furnaces through the winter would be unable to outbid each other above the price cap, which is usually determined by a formula based on the highest bid for last-minute power during the most recent energy supply emergency in California.

That may leave power wholesalers, and not a free market, to decide who gets the energy.

"There’s no price signal to indicate who most wants the power; your prices are based on California demand and supply," Ackerman said. "If the Northwest has a cold winter day then the price can’t go above the California price."

"Certainly, California has a tremendous pull on our prices and has for probably the last year," said Claudia Rapkoch, spokeswoman for Montana Power, which supplies natural gas and electricity to two-thirds of the Big Sky state. "What it means for this winter, we’re just going to have to wait and see."

Different loyalties: California utilities had much more control over power supplies before deregulation in 1996 obligated them to sell their power plants to spur competition. This brought lower prices for a time, but gave control over power supplies to wholesalers that aren’t obligated by state law to serve the serve the best interests of local customers.

Rather than appointing one power grid manager to decide how to divide power in the West, Ackerman predicts utilities in non-deregulated states will simply sell their power within their borders. That would hurt California, which this week imported about 10 percent of its electricity and its remaining supply from local plants owned by out-of-state power companies.

Price cap or not, utilities in the region will watch out for each other as best they can, because they might need the favor returned, said Charles Reinhold, executive consultant for Electric Resources Strategies in Queen Creek, Ariz. He said sending power long-distance over transmission lines "is more an impediment to moving the power than really any conscious decision not to move power to another state."

-- PHO (owennos@bigfoot.com), June 22, 2001

Answers

I guess what bothers me the most about this price cap baloney is that people do not seem to realize that it's that last 10% or so of needed supply--NOT under long-term contract--that is the joker in the deck. Simply put, when the needed megs hit 45,000, as they inevitably will by mid-summer--there will be so much resentment of California among generators, and now other Western States too, that receivers of that last needed 10% will be, well, guess who. NOT Califoria. Instead, ways will be found by the generators to funnel the, now capped, spot price supply to OTHER states such as Arizona, Nevada, Idaho, Washington, and Oregon--leaving Calfornia (due to a problem of its own making) to go begging. Hence, rolling blackouts, as figured.

-- JackW (jpayne@webtv.net), June 22, 2001.

That's a real possibility. It would be nothing more than payback for all the noise made about it for political reasons, e.g. the continued jumping up and down threats by Davis to sue the pants off the power generators and seize their in-state facilities.

-- Billiver (billiver@aol.com), June 22, 2001.

Looks like that might speed up the decision to condemn plants, too. It could get real ugly come August. If there is a war between the capitalists and the socialists, everybody loses.

On a (sort of) brighter note, we have the 45,000 megawatts now and air conditioners are still humming in 102 degree heat here in the Central Valley. More people are talking about line drying, hiking the AC settings up, turning off computers and lights, running the pool filters less often. My house AC is set for 80 degrees and now walking into a room cooled to 72 degrees makes me shiver. If enough people are willing to make some adjustments (note: I'm not saying "sacrifices") then perhaps we will need only 5% and not 10% imports this summer.

-- Margaret J (mjans01@yahoo.com), June 22, 2001.